SA's quarterly growth hits 10 year low

Real Gross Domestic Product (GDP) grew by 1.0% in the third quarter after slowing by a revised 3.5% in the second quarter, the SARB reported.

According to the central bank's Quarterly Bulletin this was due to a significant contraction in the country's mining sector which has been directly affected by a drop in demand for commodities in developed markets, many who are in the midst of a recession.

Manufacturing decline

Adding to South Africa's economic woes, the SARB reported that the country's manufacturing sector also declined significantly in the third quarter of 2008.

“The tight domestic economic environment in the third quarter of 2008 was reflected in stagnant real disposable income in the household sector and a contraction - the first since the fourth quarter of 1998 - in the sector's real final consumption expenditure.

“Purchases of consumer durables declined considerably, while expenditure on nondurable goods such as food and fuel also receded, consistent with the high prices of these items,” the SARB said.

Credit demand slows

The prevailing high interest rates did manage to slow demand for credit as a percentage of household debt in the third quarter after peaking in the first quarter of this year.

The environment on international markets and the depreciation of the local currency presented a new risk to inflation, said the bank.

“The effective exchange rate of the Rand depreciated significantly during September 2008 and subsequently fluctuated around lower levels.

“Broadly, similar behaviour was displayed by the currencies of a number of other commodity-producing countries with comparatively large current-account deficits,” the bank reported.

MPC rate meeting

The bank's Monetary Policy Committee (MPC), who is holding its two-day meeting over Wednesday and Thursday this week, is expected to bring some relief to consumers with a 50 basis point cut in the repo rate.

The MPC kept the rate unchanged at 12% in August and October 2008.

New CPI basket

In the Mid-Term Budget Policy Statement (MTBPS) this year, Finance Minister Trevor Manuel highlighted that there will be a new Consumer Price Index (CPI) basket as of January 2009.

This revised CPI basket, used for inflation targeting purposes, would see inflation being revised downwards by 1 - 2% next year.

The change in the CPI basket will see the measure of inflation no longer include mortgage interest costs, but will include owners equivalent rent.

Article published courtesy of BuaNews